The Social Value of Asymmetric Information

Franklin Allen

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: A welfare analysis of a simple noisy rational expectations model is carried out. It is shown that the more information prices convey, the worse off everybody can be. However, the equilibrium where everybody is uninformed may not be Pareto optimal: imposing a tax on information gathering which finances a lump sum grant may allow everybody to be better off when some people are informed.

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